Stock Options Trading Tips for Beginners

There are many advantages to trading stock options when compared with regular stock trading and investing. Like any type of investing, it is essential to have a good amount of knowledge about the type of investment before taking the plunge. Here are some tips for beginning in option trading.

Research:-

If you are starting with little knowledge about stock options, it is especially important to do your research first. Get a book or attend some seminars. It can be complicated and has many different types of trading, buying and selling available. Know what type of options you want to try your hand in and do you best to research that specific area. You need to know terms like calls, puts, long call, short call, long put, short put, long synthetic, short synthetic, call backspread, put backspread, call bull spread, put bull spread, covered call, protective put, collar, call bear spread, put bear spread, long straddle, short straddle, short strangle, long strangle, long guts, short guts, call time spread, put time spread, call ration vertical, put ration vertical, long call butterfly, short call butterfly, long put butterfly, short put butterfly, long condor and short condor, among others. If this sounds like a lot, it is, and you should at least know the basics of what these terms mean.

Stay on Top:-

Don't forget to tap into the vast resources of the Internet and subscribe to the many intraday stock tips newsletters, join forums and stay on top of options trading news. Make it a daily habit to read up on what's going on in the market.

Courses & Tutorials:-

One of the best ways to start your foray into trading is to get yourself a course, system or take advantage of some tutorials. There are many basic tutorials available for free online that will give you the basics of stock option trading tips with them. Many tutorials even have videos, examples and other interactive elements which can be very valuable to someone who is new to trading with stock options. There's also numerous courses that are available online and offline, many include electronic books, memberships, forums, videos, DVD's, audio files, spreadsheets and other materials. A course that is designed to teach you how to trade can be very valuable to a newbie to options trading.

Software:-

Finally, there are numerous options when it comes to options trading software. These software packages and systems can help you simulate and analyze scenarios and can be valuable tools in your stock options trading.

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Options Trading Tips for Conservative Traders

As you know, when it concerns investing money in the stock market, or any other sort of exchange, there's always going to be a reasonable measure of risk involved. You could make an immense amount of money and retire, or you could turn a loss and lose your shirt with a poor decision.

There are unlimited ways to trade options due to the unlimited number of option trading tips strategies and approaches that can be adopted. This article outlines options trading tips that conservative traders can follow for maximum safety in options trading.

1. Use only money you can afford to lose

This is the most common advice given in options trading and one which most people choose to ignore to their own detriment. Using only money you can afford to lose means that if you hope to lose no more than $200 in a single trade, then you should use no more than $200 in buying options at any one time. The good thing about options is that the leverage it offers allows you to make a significant profit even with very small capital outlays and even if you get it wrong, all you can lose is $200, nothing more... if you follow the next tip.

2. Always buy options or positions with at least 3 months to expiration

Unless you are a sniper sharp stock picker or using credit strategies which you want expire quickly, always buy options or position with at least 3 months to expiration. There is nothing more frustrating to see your positions expire before the stock cash tips starts to move.

3. Use advanced orders to enforce your stop loss

Most people give in to their emotions when it's time to take a loss thinking that the position might come back the next day. We all know what usually happens after that, yes, the position gets held all the way to expiration and then it expires worthless, losing 100% of its value. Yes, nothing is more difficult than trusting your human emotions to enforce stop loss points. That is why you must always make use of advanced orders such as conditional / contingent orders or trailing stop loss to automate your stop loss policy.

4. Trade for profit, not for fun

Most beginners trade options or intraday tips for fun more than profits. Their main aim is merely to use these overly hyped options strategies and see how they work with the aim of making money being secondary. Yes, treating options trading like a hobby and options trading will behave just like a hobby and hobbies cost money. If you don't think a trade has a high chance of turning out successfully, don't make it.

5.  Use put options to hedge your stock holdings

Perhaps the best use of put options of all time is to buy them as a hedge against your stocks. If you have stocks which you are holding for long term investment purpose, consider buying LEAPS put options expiring six months to a year out as protection against catastrophic drops.

6. Avoid Out Of the Money Options if you intend to trade with all your money

The reasons why most beginners lose all their money in options trading in one go is because they buy out of the money options with all their money. This means that they will lose all their money even if the stock moved in their favor but not enough to bring the options in the money! Now, bearing in mind that you should only be using money you can afford to lose, buying only in the money options with those money give you even higher protection and lesser chance of losing everything.

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